JP Morgan Chase 2015 Annual Report Download - page 136

Management’s discussion and analysis
126 JPMorgan Chase & Co./2015 Annual Report
Presented below is a discussion of certain industries to
which the Firm has significant exposure and/or present
actual or potential credit concerns. For additional
information, refer to the tables on the previous pages.
• Real Estate: Exposure to this industry increased by
$10.9 billion, or 10%, in 2015 to $116.9 billion. The
increase was largely driven by growth in multifamily
exposure in Commercial Banking. The credit quality of
this industry remained stable as the investment-grade
portion of the exposures was 75% for 2015 and 2014.
The ratio of nonaccrual retained loans to total retained
loans decreased to 0.25% at December 31, 2015 from
0.32% at December 31, 2014. For further information
on commercial real estate loans, see Note 14.
• Oil & Gas: Exposure to the Oil & Gas industry was
approximately 5.3% and 5.4% of the Firm’s total
wholesale exposure as of December 31, 2015 and
2014, respectively. Exposure to this industry decreased
by $1.1 billion in 2015 to $42.1 billion; of the $42.1
billion, $13.3 billion was drawn at year-end. As of
December 31, 2015, approximately $24 billion of the
exposure was investment-grade, of which $4 billion was
drawn, and approximately $18 billion of the exposure
was high yield, of which $9 billion was drawn. As of
December 31, 2015, $23.5 billion of the portfolio was
concentrated in the Exploration & Production and
Oilfield Services sub-sectors, 36% of which exposure
was drawn. Exposure to other sub-sectors, including
Integrated oil and gas firms, Midstream/Oil Pipeline
companies, and Refineries, is predominantly investment-
grade. As of December 31, 2015, secured lending, which
largely consists of reserve-based lending to the Oil & Gas
industry, was $12.3 billion, 44% of which exposure was
drawn.
In addition to $42.1 billion in exposure classified as Oil
& Gas, the Firm had $4.3 billion in exposure to Natural
Gas Pipelines and related Distribution businesses, of
which $893 million was drawn at year end and 63% was
investment-grade, and $4.1 billion in exposure to
commercial real estate in geographies sensitive to the
Oil & Gas industry.
The Firm continues to actively monitor and manage its
exposure to the Oil & Gas industry in light of market
conditions, and is also actively monitoring potential
contagion effects on other related or dependent
industries.
• Metals & Mining: Exposure to the Metals & Mining
industry was approximately 1.8% and 1.9% of the
Firm’s total wholesale exposure as of December 31,
2015 and 2014, respectively. Exposure to the Metals &
Mining industry decreased by $920 million in 2015 to
$14.0 billion, of which $4.6 billion was drawn. The
portfolio largely consists of exposure in North America,
and 59% is concentrated in the Steel and Diversified
Mining sub-sectors. Approximately 46% of the exposure
in the Metals & Mining portfolio was investment-grade as
of December 31, 2015, a decrease from 55% as of
December 31, 2014, due to downgrades.
Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of customers, ranging from large
corporate and institutional clients to high-net-worth
individuals. The Firm actively manages its wholesale credit
exposure. One way of managing credit risk is through
secondary market sales of loans and lending-related
commitments. For further discussion on loans, including
information on credit quality indicators and sales of loans,
see Note 14.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2015 and
2014.
Wholesale nonaccrual loan activity
Year ended December 31, (in millions) 2015 2014
Beginning balance $ 624 $ 1,044
Additions 1,307 882
Reductions:
Paydowns and other 534 756
Gross charge-offs 87 148
Returned to performing status 286 303
Sales 895
Total reductions 915 1,302
Net changes 392 (420)
Ending balance $ 1,016 $ 624
The following table presents net charge-offs, which are
defined as gross charge-offs less recoveries, for the years
ended December 31, 2015 and 2014. The amounts in the
table below do not include gains or losses from sales of
nonaccrual loans.
Wholesale net charge-offs
Year ended December 31,
(in millions, except ratios) 2015 2014
Loans – reported
Average loans retained $ 337,407 $ 316,060
Gross charge-offs 95 151
Gross recoveries (85) (139)
Net charge-offs 10 12
Net charge-off rate —% —%